The most-traded FOREX primary currency: EURUSD, has shown some signs of recovery during the Asian session today after testing a new low yesterday at 1.06100. During her speech yesterday, the Euro lost significant value on Thursday against its counterpart – the US dollar, following the dovish positions of the European Central Bank (ECB) president Christine Lagarde. The ECB board of policymakers unanimously agreed on Thursday to leave its benchmark deposit rate unchanged at -0.50%, which was the expectation of significant investors. The board further revealed that they intend to raise the interest rate by 25 basis points only during its meeting next month.
Lagarde, in her opening speech yesterday, observed that the inflation rate for Euro has broadened and remains undesirably high, which is currently a significant challenge for the committee. It was hoped that the policymakers would hike the interest rate immediately by at least 50 basis points to match its counterpart (US dollar) with pressures across various sectors. Still, the committee had instead deferred this action till its next meeting in July – proposing only a 25 basis point hike for a start and possibly 50 basis points by September.
Lagarde believes adopting an interest rate cycle with slower increases over time was better. Rather than proceeding immediately with a 50 basis point hike just as witnessed last month for the US dollar. Hence, she considered an initial 25 basis point walk sizable rather than using an excessive figure above it.
Additionally, the ECB left its Main Refinancing Rate unchanged at 0.00%, which further discounted the Euro.
This pushed investors to dump the Euro so hard yesterday in favour of the dollar. Hence we saw EURUSD falling to a new low at 1.06100 during the European session yesterday.
All eyes are currently on the US CPI data to be released today, which will determine the next major trend for EURUSD.
What effect will the CPI report have on EURUSD today?
The US consumer price index (CPI) to be released today is the quickest means of measuring the country’s inflation rate.
A decrease in the inflation rate will mean temporary bullishness for the US dollar. This will also strengthen the dollar index while spelling bearishness for EURUSD.
An increased inflation rate will cause temporary bearishness for the US dollar. This would prompt the Fed to aggressively hike the interest rate at the next Fed session.
